TREASURIES-After volatile swings, bonds ending week little changed

Reuters Staff

3 Min Read

* Investors seen squaring positions for weekend
* U.S. budget seen increasing debt issuance
By Karen Brettell
NEW YORK, Feb 9 (Reuters) - Benchmark 10-year note yields
were set to close the week little changed on Friday, after a
volatile week of trading, as investors are likely wary of
holding positions over the weekend.
Bond yields have jumped in the past two weeks as rising
inflation and other economic data has led investors to adjust
for the prospect of faster economic growth and the possibility
the Federal Reserve will raise interest rates faster than
previously expected.
Rising bond yields, however, have spooked equity investors,
who worry that higher rates may dent growth. Volatility in
equities has at times added a bid to hold low risk U.S.
government debt.
“Given some of the sharp movements we’ve seen in the past
week people will be a little bit more worried about going home
short than they normally would. I think that helps provide some
support today,” said Michael Cloherty, head of U.S. rates
strategy at RBC Capital Markets in New York.
Benchmark 10-year notes were last down 2/32 in
price to yield 2.855 percent, near where they ended at last
Friday.
For most of the week they have traded near the high end of
the range between a four-year high of 2.885 percent and a low of
2.648 percent both reached on Monday.
Rising U.S. debt issuance is expected to weigh on bond
prices in the coming months.
The U.S. House of Representatives joined the Senate early on
Friday morning in approving a budget bill that raises military
and domestic spending by almost $300 billion over the next two
years. With no offsets in the form of other spending cuts or new
tax revenue, that additional spending will be financed with
borrowed money.
“This is a larger effect on the deficit over the next two
years than the tax bill by a significant margin,” said Cloherty.
Issuance is also expected to jump as the Treasury rebuilds
its cash position after the country’s debt ceiling was lifted
until March 2019.
The Treasury has already begun to increase the size of its
public auctions to make up for declining purchases by the
Federal Reserve, which analysts say may have added to the
softness of $66 billion in new sales of three-, 10- and 30-year
debt this week.
The U.S. central bank’s purchases have not been included in
the bond sales, which previously enabled the Treasury to lower
public auctions sizes.
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